Business

Petrol prices tipped to keep rising

Updated
February 25, 2013 19:29:00

New research says that as the global economy improves, Australian drivers can expect local petrol prices to rise. Average petrol prices were at 152 cents a litre last week with China and other emerging economies driving up the demand for oil.

MARK COLVIN: New research says that as the global economy improves, Australian drivers can expect local petrol prices to rise. Average petrol prices are now at 152 cents a litre. Data from the Australian Institute of Petroleum and CommSec show prices are at nearly the highest in a year. Demand for oil is being driven by China and other emerging economies.

Here's resources reporter, Sue Lannin.

SUE LANNIN: Prices at the petrol pump are at the highest since April last year according to the Australian Institute of Petroleum. The culprit: the improving but fragile global economy. As demand for oil rises so too does the price.

SAVANTH SEBASTIAN: We have seen petrol prices actually surging in the last couple of weeks. The average price has breached through $1.50. It's now holding at the highest level since April 2012.

Really the drivers behind it is the fact that the global economy is healing. We're seeing that investors believe that there's going to be much more demand for oil, and as a result global oil prices have rallied quite sharply.

SUE LANNIN: CommSec estimates that motorists are spending $183 a month on petrol, up $16 since the start of the year. Australian wholesale petrol prices are closely linked to Singapore's benchmark petrol price.

Savanth Sebastian says price rises in Singapore have seen petrol prices here increase by around 13 cents in just over two months.

SAVANTH SEBASTIAN: Unfortunately for domestic motorists it is the overseas factor that are driving fuel prices higher. And we derive a significant proportion of our fuel from the Singapore unleaded price. And that's actually holding just at around the highest levels in about 10 months.

SUE LANNIN: Back home, oil refiner, Caltex, is back in the black because of higher profit margins on jet fuel, diesel, and premium petrol. It made an annual net profit of $57 million for 2013, after 2011's $714 million loss after it took huge writedowns because it decided to close its Kurnell refinery in Sydney.

Caltex chief executive, Julian Segal, says that's the right strategy.

JULIAN SEGAL: Over the medium to longer term our vision is to continue to be the outright transport leader in fuels in Australia. Following the closure of our loss-making Kurnell Refinery, we anticipate low volatility in our future earnings and cash flow, due to the reduced exposure to refining.

SUE LANNIN: Kurnell will close at the end of 2014, leaving Caltex with one refinery in Australia - Lytton in Brisbane.

Simon Hepworth is the company's chief financial officer.

SIMON HEPWORTH: When you put those together and you look at the different product slates and the cost base, then you can see that it's not a big stretch to see that Lytton makes good money and Kurnell struggles to make a significant contribution to the bottom line.

SUE LANNIN: Resources analyst at Morningstar, Mark Taylor, says Caltex had little choice but to close its refinery in Sydney.

MARK TAYLOR: Look I don't think they really have any choice. It is a shame because having your own refining capacity gives you a natural hedge if there's any hikes in the regional refiner margin, as occurred in the last results. The refiner margins regionally went up very strongly due to some maintenance and closures, and that serves Caltex very well having its own refineries in this particular circumstances.

But, the refineries are an intractable disadvantage to those far larger and more modern Asian refineries.

SUE LANNIN: Australia imports about 80 per cent of the crude oil it uses, so fewer refineries will have little impact on the local petrol price.

Savanth Sebastian says a resurgent China, and other economies like India, will continue to drive demand for fuel.

SAVANTH SEBASTIAN: The fact of the matter is that the Chinese economy and the emerging economies are starting to recover at a healthy pace. That will be the real driver behind the oil price.

I guess for motorists it really will come down to the mechanisms of the Australian dollar. If the currency holds up well, well we will continue to be in a lot better position than some of our counterparts in the US and Europe. But if the currency does come off over the coming year, well it can have an impact in paying even more higher fuel prices over the next few months.